#129 President Biden’s Road to Serfdom
Then Vice-President Joe Biden contributed to the 2015 President’s Economic Report, stating that higher taxes result in lower wages. Thus President Biden’s call this week for higher taxes are leading America down The Road to Serfdom
Taxes Lower Wages
President Obama was correct. His 2015 Economic report reads, “A lower effective marginal tax rate will tend to encourage additional projects and a larger capital stock. Increases in the capital available for each worker’s use, also referred to as capital deepening, boost productivity, wages, and output.”
Joe Biden was his Vice President, and thus, contributed to this statement. Then, why is he now promoting tax increases that would do the opposite? Back to the report that was written by the Administration when Joe Biden was Vice President, in 2015. “When effective marginal rates are higher, potential projects need to generate more income if the business is to pay the tax and still provide investors with the required return. Businesses will therefore limit their activities to higher-return projects. Thus, all else equal, a higher effective marginal tax rate for businesses will tend to reduce the level of investment.” The administration of which Joe Biden was a member in 2015 was correct. Every reasonable economist agrees with that statement. It brings to mind one of my favorite sayings, You can change economic policy, you can’t change economic law.
Why does President Biden want to reduce productivity, wages and output? That’s a reasonable question, because an article in the Wall Street Journal this week by James Freeman states clearly that his policies will do exactly that. The article is titled “Biden Tax Hike: $3.5 Trillion.” The subtitle reads, “The White House economic agenda is the principal threat to growth.”
Policies that Promote Production
Early in the semester, when I ask students why some countries are rich, they give predictable answers, like oil and natural resources. Those make SOME contribution, but it doesn’t explain why Japan is so rich with very few resources. Hong Kong and Singapore have NO natural resources, and they are two of the richest places in the world, because they are effective traders.
Venezuela has more oil and gas reserves than any country in the world, and there is not enough food on the shelves, nor basic medical supplies. One-third of the country’s population has fled to neighboring countries. Really, the first time I read that fact about Venezuela, I was stunned. I read it three times, and looked it up. It’s true. So with abundant natural resources, why are they so poor? They made one election mistake: They elected Socialist Hugo Chavez in 1999 and the country headed down what that guy called The Road to Serfdom. Charles Payne of Fox Business News quipped at a recent Free Market Forum, sponsored by Hillsdale College, “You can only vote for Socialism once. That has been true in Venezuela. Is it becoming true in America?
President Biden’s policies are taking us down the Road to Serfdom. How far will we go? Because at some point, there’s no turning back, as the Venezuela’s have found.
Stay tuned for a future podcast on how many South American countries are following Venezuela down the road to Serfdom.
Our wealth is not divinely mandated. We are wealthy because we have policies that promote production. When those policies change, we will become poorer.
I showed these comparative US Debt Clock screenshots to a group I presented to this week. Since my DBU sophomores have been in high school, in 2016, the US debt has ballooned from $20 trillion to $30 trillion. Notice on the second screenshot that interest on the debt is now the fourth largest expenditure for the Federal Government. What do we get for that? Nothing. It will increase as debt increases, and as the interest rate increases.
Oh, and wait, it gets even worse. This is BEFORE the title of James Freeman’s column, again, titled “Biden Tax Hike: $3.5 Trillion.” The comparison to Venezuela is stark and frightening. Americans seem to think we can have the economic policies of Venezuela without the effects. Again: You can change economic policy, you cannot change economic law.
For more on the Christian Worldview of debt, take a look at my podcast #8 National Debt. But for now, one more data point: This screenshot of the US Debt clock shows that the annual deficit this year under the Biden administration is almost $2 trillion. The federal government has $4.2 trillion in revenue and $6.2 trillion in expenditures. That’s just astounding. Only nine countries have GDP greater than $2 trillion. The annual debt of the US federal government is greater than the total GDP of the country of
Brazil, Russia, South Korea and Australia. I struggle for words to explain it. It is simply unsustainable, and the administration wants to increase it.
The Biblical View of Taxes
When I spent an evening in the home of Dennis Prager recently, he and I were separated by his dog, Otto. I prepared this quip, but didn’t get to use it, so I will use it today, “All dogs may go to heaven, but taxes don’t.” Taxes are stealing, and are a violation of the eighth commandment. We allow them, because in a fallen world, we need military and police protection from evil people. In heaven, there will be no evil, so there will be no taxes. Although, your dog might be there.
Taxes are an artificial increase in the price, which reduces the amount supplied and the amount demanded. Then, there’s deadweight loss, which further reduces the quantity supplied. Third, the money is taken from profitable sectors, and moved to non-profitable sectors.
If taxes are a necessary evil, then you will want to limit them as much as you can. But President Biden wants to increase taxes. Here’s how Mr. Freeman explains it in the article I’ve been quoting today, “It’s not just that the U.S. corporate tax rate would be higher than those of our competitors—it wouldn’t even be close. The Tax Foundation finds that when combined with state taxes, the combined U.S. rate would be nearly 10 percentage points above the average found in other industrialized economies.”
I think the Biden administration has lost sight of the Biblical mandate for taxes. You see, in the Christian Worldview, the purpose of taxes is to protect us from evil. Taxes as an economic distribution scheme don’t fit the Christian Worldview. It’s simple: There are Biblical commands to give, but there is no Biblical command to take. Since the Government has no money, it must take before it can give. The church can give without taking.
Goldman Sachs produced the BRIC diagram in 2001. When I learned about it, I made a grand plan to take MBA students from DBU to all four countries over successive Spring and Fall breaks. We learned a lot and it was a fantastically successful program.
Here’s a quick review: The flags of countries in the top left circle have arable land in excess of 20 million hectars. The flags of countries in the top right have population over 100 million people. The flags of countries in the bottom circle have GDP in excess of $US 500 billion a year. In addition to the US, there are only four countries, whose flags appear in the middle of the diagram: Brazil, Russia, India, and China.
Then why aren’t they rich? The reason they are poor is they do not have Policies that Promote Production.
If you’re looking for a list of countries who HAVE policies that promote production, you will find it at Heritage.org. It’s called the Index of Economic Freedom. The US has fallen from 17 to 25 over the last three years, and we’re headed further down the list. There are 12 measures in the index. The US earns relatively high scores on 11 of them but earns a score of zero on the measure titled Fiscal Health. Fiscal policies are those from the government. Here’s what James Freeman’s subtitle says about fiscal policy: “The White House economic agenda is the principal threat to growth.”
Oh, and the BRIC countries? Yes, they have land, labor and capital, but they are missing Policies that Promote Production. Their rankings on the Index of Economic freedom are 133, 113, 131, and 158.
Two more countries, then I’m done. Each year, 350,000 people hike a pilgrimage in Spain that ends at the tomb of James, the brother of John, sons of Zebedee. You remember, “Sons of thunder?” Well, Ginger and I hiked the Camino de Santiago last month with a friend from our church group. Rural Spain is beautiful with small farms and trees and hills. But while American’s income averages almost $70,000 a year, the Spanish average $40,000. Selah on that for a minute. If everyone in your church made $2500 less PER MONTH, what would life be like in your community? How many would send their children to a University like Dallas Baptist? How many would have two cars? How many would eat out three times a week? Oh, wait, it gets worse. We ended the Camino next to Portugal, so Ginger and I went there for a few days. Really nice place. We rode a high-speed train, the roads and streets are really good. The water is safe to drink, and the cities are well-policed. They have rich governments and poor people. They make $35,000 a year. HALF of what Americans make. Remember, this data is adjusted for Purchase Power Parity. It means that the Portuguese can purchase HALF the goods you and your fellow church members can purchase. How can a Portuguese citizen be a Good Samaritan making half of what you make?
Look, the road to serfdom has been known for years. It is very clear. The Biden Administration wants us to be more like the Europeans. Just remember, that means you will make HALF what you now make. For some historic context, I will cite The Tax Foundation’s view on President Biden’s ambitions, “The magnitude of the tax and revenue increases on the table is unprecedented…”
Ginger noted this week, “Did you realize that the most viewed of your podcasts is #88 Don’t Fear the Future?” That’s pretty interesting, because there is PLENTY to fear, and I’ve described it in this podcast. I will allow you to view that one on your own, but the brief encouragement for today is the same one I give to my students at DBU, after I’ve got them all depressed about the possibility of default from the crushing national debt. I explain: National debt will make you poorer in the future. There’s just no other way to explain it. Fiscal policies will take away more of your money. But they won’t take away your spouse, your family, your church, your salvation, nor your joy.
I close each podcast saying “Fear God,” because if you fear God, you will fear nothing else.
TELL THE TRUTH,
EARN A PROFIT.
READ ALONG WITH #THECHRISTIANECONOMIST
- Biblical Economic Policy https://amzn.to/3nn8inO
- Economics and the Christian Worldview | https://amzn.to/3tIsYYM
- 2015 Economic Report of the President | https://obamawhitehouse.archives.gov/sites/default/files/docs/cea_2015_erp_complete.pdf
- WSJ – Biden Tak Hike | https://www.wsj.com/articles/biden-tax-hike-3-5-trillion-11654636839
- #27 Policies that Promote Production | https://davearnott.com/27-policies-that-promote-production/
- The Road to Serfdom | https://amzn.to/3tNwbpK
- US Debt Clock | https://www.usdebtclock.org/
- #8 National Debt | https://davearnott.com/episode-8-national-debt/
- PragerU Fireside Chat | https://www.prageru.com/video/ep-237-can-we-learn-about-economics-from-the-bible-with-professor-dave
- Goldman Sachs Bric Diagram | https://www.goldmansachs.com/our-firm/history/moments/2001-brics.html
- Index of Economic Freedom | https://www.heritage.org/index/ranking
- Tax Foundation’s view | https://taxfoundation.org/biden-tax-increases-2023-budget-proposal/
- #88 Don’t Fear the Future | https://davearnott.com/88-dont-fear-the-future/